Taxing questions

Most of us risk being taxed on our income, our capital gains and the value of our estate when we die. It is worth getting a clear grasp of how these taxes work and then discussing with your financial adviser the most tax efficient financial planning for you.

Income tax

Tax rates and allowances

With changes in the tax system now an ever-present feature, our up-to-date experience is available to ensure clients' tax liabilities are planned to be at a minimum.

Personal allowances and reliefs

2016/17

2015/16

2014/15

2013/14

Personal allowance

£

£

£

£

Aged under 65*

11,000

10,600

10,000

9,440

Born between 6 April 1938 and 5 April 1948

11,000

10,600

10,500

10,500

Aged 65 - 74

-

-

-

-

Aged 75 & over

-

-

-

-

*Personal allowance restriction from 2010/11 on

The personal allowance is restricted by £1 for every £2 of an individual's adjusted net income above £100,000.

** Transferable allowance: a spouse or civil partner who is not liable to income tax above the basic rate may transfer £1,100 (2015/16 £1,060) of their unused personal allowance to their spouse/civil partner, provided that the recipient of the transfer is not liable to income tax above the basic rate. Taxpayers have 4 years in which to make the election.

Income tax rates

Rate

%

2016/17

2015/16

2014/15

2013/14

2012/13

2011/12

2010/11

2009/10

2008/09

Basic*

20%

£0 -£32,000

£0 - £31,785

£0 to £31,865

£0 to £32,010

£0 to £34,370

£0 to £35,000

£0 to £37,400

£0 to £37,400

£0 to 34,600

Higher

40%

£32,000 to £150,000

£31,786 to £150,000

£31,866 to £150,000

£32,011 to £150,000

£34,370 to £150,000

£35,001 to £150,000

£37,401 to £150,000

37,401 and above

34,601 and above

Top

45%

£150,000 +

£150,000 +

£150,000 +

£150,000 +

-

-

-

n/a

n/a

Top

50%

-

-

-

£150,000 +

£150,000 +

£150,000 +

n/a

n/a

*Starting rate band:

a starting rate applies to savings income up to:

£5,000 2016/17 - rate 0%

£5,000 2015/16 " "

This band is not available if taxable non-savings income also exceeds this band.

Personal Savings Allowance

From 2016/17 basic rate taxpayers will not have to pay tax on the first £1,000 of their savings income.

From 2016/17 higher rate taxpayers will not have to pay tax on the first £500 of their savings income.

There is no personal savings allowance for upper rate taxpayers.

From April 2016 banks and building societies will no longer deduct basic rate tax from interest.

Dividend tax from 2016/17

The dividend tax credit is abolished

The first £5,000 of dividend received is tax free

Basic rate dividends taxed at 7.5%

Higher rate dividends taxed at 32.5%

Upper rate dividends taxed at 38.1%

Pensions - higher rate restrictions

Contribution limits

From 2014/15 on

2011/12 to 2013/14

To 2010/11

Annual allowance

£40,000*

£50,000

£215,000

Lifetime allowance

£1.25 million*

£1.5 million

£1.8 million

*Reducing to £1m 06/04/2016

You may also be able to reduce tax on any interest you've earned on your savings by possibly switching savings onto the life of a spouse, if he or she has no income or a low income.

The self-employed can claim business expenses against their income. So make sure you include all possible justifiable business expenses on your self-assessment form. This also applies to capital allowances for expenditure on plant and equipment, including computers and tools, for example, used for your business.

If you employ an accountant, they should be able to confirm your correct allowances for you.

Don't forget pension payments either. You may be able to pay further contributions to your pension, which can soak up some unused tax relief.

One other point to remember, if one spouse is a tax payer and the other is not or pays tax at a lower rate it is worth considering switching some investments to take advantage of their unused tax allowances.

Tax Shelters

Tax shelters

Enterprise Investment Scheme (EIS) up to

£1,000,000

£1,000,000

Maximum amount for EIS carry back

£50,000

£50,000

Income tax relief rate

30%

30%

Seed Enterprise Investment Scheme (SEIS)

£100,000

£100,000

Venture Capital Trust

£200,000

£200,000

VCT tax relief rate

30%

30%

Capital gains tax

In the tax year to 5th April 2015/2016 the CGT allowance is £11,100.

This means that you do not have to pay tax on gains from buying and selling shares or other investments during the tax year up to that amount. Remember also that you do not normally have to pay tax on any gain you make when you sell your main residence.

If you have used your CGT allowance, don't forget your ISA allowance. A "stocks and shares ISA" can shelter capital gains and dividends on investments, for example shares.

Your ISA allowance for tax year 2015/2016 is £15,240. You can invest up to £15,240 into any combination of cash ISA and the remainder into a stocks and shares ISA, or you can invest your full allowance into a stocks and shares ISA.

Transfers from previous ISA plans are also allowed without loss of ISA status

Inheritance tax

Inheritance tax is hanging over more and more of us each year. This is largely due to the rise in residential property values. The current IHT allowance is £325,000. Depending on the value of your house and other assets this may not be that big an allowance. If you die leaving an estate worth more than £325,000 and you have no spouse your estate will come in for IHT at 40% on the balance.

Even if you do have a spouse to inherit then this only puts off the time when tax will be payable because he or she will also pass away one day. It is worth doing some forward planning with us to decide whether it would be appropriate to gift some of your estate, perhaps to children or other relatives, during your lifetime; or possibly redirect assets up to the value of the nil rate band into a trust on death.

The nil rate band is effectively transferable between husband and wife such that where one spouse has died with a chargeable estate for IHT of less than the nil rate band at the time, the unused proportion will be added to the nil rate band of the surviving spouse on the second death.

One thing is for sure with all forms of tax; if you do nothing the government will use its considerable powers to make sure a share of your hard earned wealth ends up in their coffers.

For further information about Inheritance Tax and its full effects and its possible mitigation please click here.